Can I Sell My Home Subject to a Federal Tax Lien?

Shortly after you fail to comply with an official demand for payment of your tax debt from the IRS, a secret lien attaches to all of your real property and personal property. However, the IRS can also file an official notice of federal tax lien on your home, and other property at the county recorder’s office, which puts the public on notice of the tax lien. This can seriously interfere with your ability to sell your home because any buyer would have to take the home subject to the lien.

However, the IRS will remove the lien—known as a lien discharge—in certain situations. By removing the lien, the IRS is giving up its right to this specific piece of property, which can be assigned a specific monetary value. The IRS will generally only give up this right if it receives something of equal value, or if there is sufficient equity in your other assets to convince the IRS that it will be able to get the money from your other assets.

For example, if you want to sell your home for $400,000, and you owe $300,000 on the first mortgage, the IRS has a lien interest of $100,000 on your home. If you want the IRS to give up this interest, you will have to either give $100,000 in value or show that you have other assets satisfactory to the IRS that will satisfy their claim.

If you want the IRS to discharge the lien because you have plenty of equity in other property for the IRS to attach a lien interest to, the total value of the remaining property must be equal to twice the amount of the tax liability owed plus any other debts that are senior to the tax lien (such as a mortgage). Even so, the IRS may still not issue a discharge.

If you want the IRS to waive the lien based on partial satisfaction of the tax debt, you must give them the proceeds from the sale in an amount equal to the IRS lien interest in your property. Using the example above, you would have to give the IRS $100,000 from the sales proceeds in order to receive a lien discharge. You might also get the IRS to agree to have the sales proceeds held in escrow, with the IRS maintaining the same lien priority in the escrow funds as it had in your home. This rarely occurs unless there is a legitimate dispute about who is entitled to the funds.

If you are able to get the lien discharged, the IRS will still retain a lien interest in all of your other property, and you will still owe the tax liability that remains after any proceeds are distributed to the IRS. Contact a tax lien removal attorney for more information on negotiating a lien discharge.